Investing Wisely: How to Choose the Best Stocks for Day Trading

Trading stocks is not a precise science and you will always be able to find individual investors who approach things differently to conventional wisdom but still seem to find a niche way of making money.

Accessing company news from Money Morning and other reliable sources will help to give you a potential edge, as will having a strategy and a way of choosing stocks that provides you with an opportunity to make a profit.

If you are looking to play the markets day trading, here is a look at some of the proven methods and strategies that you can adopt and adapt to suit your style and risk profile.

Volume matters

One of the fundamental and key aspects associated with day trading is being able to find stocks where there is decent liquidity and there is enough volume around to enable you to be able to buy and sell with relative ease.

There is nothing more frustrating that trying to get an order fulfilled that will see you make a profit, but because volumes are thin, you can’t take full advantage of the price and profit potential.

One of the most reliable ways of ensuring that you get the chance to make your day trading pay, is to look at only trading stocks that offer a high volume.

It should be clarified that this means a high volume relative to the size of the stock. Most of the blue chip stocks are going to enjoy healthy trading volumes on a daily basis, but you will probably need to cast your net wider than that if you are going to be able to find some worthwhile trading opportunities on a daily basis.

Learn from the past

Even if you are highly-skilled investor with plenty of years experience behind you, trading stocks is the sort of activity where you never stop learning and developing.

It is always a good idea to take a look back at your trading history, even if it is showing a profit, just to see if you can spot which type of trade has proved to be more profitable than others. Taking a bit of time each week to look back at your past trades, will often help you to identify not just profitable trends that are worth expanding on, but it also gives you the chance to see what mistakes you have made, so that you can learn from them.

Fine-tune your hit list

One of the aspects of day trading that will be critical to your long-term profitability is the ability to create a filtering system that allows you to fine-tune your hit list of stocks that you are interested in trading.

You will probably find that a good number of successful day traders have developed a filtering system that is simple to use, but highly effective in producing a hit-list of stocks to trade using a criteria that you can hone and develop over a period of time.

It shouldn’t take you too long to develop a criteria for each stock, such as volume, chosen sector or whatever filters you decide to use, so that from an initial list of potential trades, you then have a finely-tuned list that you feel comfortable and confident about.

Daily trading range

There is no doubt that some stocks do offer a noticeably thin trading range, and when it comes to day trading, these are the sort of stocks that don’t offer much invitation to get involved with a trade.

One thing to remember however, is that a fair percentage of stocks, even the ones that appear to offer a relatively small trading range, often provide you with a brief window of opportunity at some point in the day, where that range expands for a short period.

One of the skills that it would pay to acquire, would be to learn how to identify when this range expansion is taking place.

You can use tools like an Average True Range indicator to do that work for you, so that you can spot when the potential for a profit is at its highest point.

Following the chatter

It is also worth mentioning the rise of social media platforms and how they have impacted on stock markets at times.

It is always better to trade a stock based on your own research and strategy rather than relying on what is being Tweeted or talked about online, but monitoring what is going on, might offer you the chance to see where prices are wrong, simply because of negative or positive chatter, that can’t be supported by hard facts.

Choosing the best stocks to day-trade takes a combination of skill, nerve and patience, amongst other attributes, but it also helps to develop a proven and winning strategy.

Christopher Bryant is a personal finance consultant with experience in investing. He writes for a selection of finance/investment related blogs when the mood strikes!

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